After the collapse of the Silicon Valley Bank, the worth of the USDC coin fell to the lowest it has witnessed, which occurred on Saturday with the coin among the top five cryptocurrencies around the globe.
Circle is a firm in the United States of America, which has created the USDC coin. The company said that from $40B of the USDC reserves, $3.3B were at the Silicon Valley Bank.
Such circumstances along with the failure of SVB had an impact on DeFi’s behavior as well as the balance of the components.
The stablecoin USDC’s de-pegging resulted in a huge response from the chain, which caused confusion in the crypto world.
As per the professional – Ignas, the de-pegging of the USDC surprised the base of decentralized financial operations.
Impact of Circle’s USDC Depeg on the Industry
Following the financial chaos and bewilderment around, on the 11th of March, MakerDAO published an urgent proposal. After this, the people asked if restrictions could be imposed on the minting of DAI.
This could be done through the utilization of USDC, which would put a halt to the bewilderment and frustration of investors.
In this area, the number of withdrawals by investors rose following the situation in relevance to USDC.
As per the viewpoint of customers, the capital on USDC’s stablecoin was unable to be transformed into a different token.
On top of it, the stablecoin could not be compensated for fiat currency too, hence the waiting period for news regarding Circle and USDC.
Various projects announced their association with the reserves at the Silicon Valley Bank of Circle. The examples consist of Yuga Labs, Paxos, Proof, Avalanche, as well as the crypto lender – BlockFi.
Ignas mentioned that DeFi has been constructed on the liquidity of USDC, which is known as the most secure collateral.
Although in case the reserves are in conventional institutions in the form of cash, USDC’s confidence is dependent on TradFi, the government, and the banking system.
According to the professional, DeFi is not successful due to its reliance on stablecoins, conventional ways of proceedings, web2, etc.
This, in turn, gives the power and control to the government to choose which part of DeFi to close whenever they want as per their wishes.
Using On-Chain Finance as an Alternative to DeFi
The decentralized systems do not need external parties for the proceedings of the respective financial transactions.
This is because operations are done among customers peer-to-peer or among the system and the customers.
Although, as per the professional, the protocol in its entirety can be of absolute waste if a DeFi link is switched with a TradFi one.
The rebranding of DeFi into On-chain Finance lets it possess various types of DeFi advantages. These advantages include enhancing the liquidity, and improving the safety of wallets, hence resulting in bigger buy-side markets.
In addition to those benefits of the rebranding process of DeFi, the composability could also improve. This lets the decentralized apps be associated in tandem, which improves efficiency.
This occurs since commodities can be accessible on different apps at the same time, with no consent needed.
FRAX is among one the protocols which shift towards on-chain finance, as per DeFi Ignas. The FRAX protocol is believed to offer decentralized, algorithmic, and scalable funds instead of fixed-supply digital commodities like BTC.
As per DeFi Ignas, the purpose of FRAX is to get acquainted with the Federal Reserve, hence limiting the negative possibilities of USDC and collapsing banks such as SVB.
He said that the collapse of USDC is shameful for DeFi because the negativity rose through a TradFi bank. It is quite evident to the masses that DeFi is comparatively more decentralized than we assumed it.
Hence, the rebranding to on-chain finance will balance out the reality at this point of DeFi’s authenticity. In the DeFi world, more impacts will be witnessed soon with the trust of customers being shaken.